Growth stocks that offer good levels of returns today and exciting potential for tomorrow aren’t easy to find.
However, I believe I have found two, in Michelmersh Brick Holdings (LSE: MBH) and Spectris (LSE: SXS).
Here’s why I’d be willing to buy some shares in both stocks and hold them for the long haul.
Bricks and mortar
The clue as to what Michelmersh Brick Holdings does is in the name, and although bricks are hardly exciting, they’re essential across many aspects of day-to-day life.
The shares have meandered up and down during the past 12 months, mainly due to economic issues. They’re down 2% over this period, from 97p at this time last year, to current levels of 95p.
For me, economic issues are the biggest risk to the firm’s growth aspirations, earnings, and returns. For example, higher inflation and interest rates could dampen demand for bricks for infrastructure and house building. This is something I’ll keep an eye on.
On the other side of the coin, the rising population of the country, and demand for homes outstripping supply, as well as the need for further infrastructure, is good news for Michelmersh. This could all translate into heightened demand, and hopefully boosted earnings and returns for years to come.
As well as the potential for growth, the current investment case is pretty enticing too. The shares offer a dividend yield of 4.7%, which is higher than the FTSE 100 average of 3.9%. However, I do understand that dividends are never guaranteed.
Furthermore, the shares look excellent value for money to me on a price-to-earnings ratio of just nine.
The icing on the cake for me is that Michelmersh manufactures its own bricks out of its own landfill site in Telford. This is key, as controlling the manufacturing process could result in better margins and profit levels.
Testing and software
Another potentially mundane, yet vital industry, is instrument testing and software, which is what FTSE 250 incumbent Spectris does.
Spectris shares haven’t had the best 12-month period, down 19% from 3,529p at this time last year, to current levels of 2,908p.
A big reason for this is the economic slowdown in China, which has hurt demand and earnings. In fact, profit warnings in Spectris’ recent updates haven’t helped sentiment. In addition to this, the slowdown of electric vehicle (EV) sales hasn’t helped either. These are the types of cyclical and external risks that could hurt the firm and that I’ll be keeping an eye on.
Conversely, the investment case and future prospects look good to me. To start with, the shares falling means I could snap them up cheaper than before. They trade on a price-to-earnings ratio of 15, which is significantly lower than the five-year average of 21.
Next, Spectris offers a dividend yield of 2.8% at present. However, I’m more buoyed by its multi-year record of increasing payouts, which tells me the firm believes in shareholder value.
From a growth perspective, the firm’s global presence and market position, as well as its ability to offer a multitude of applications to the increasingly digital world we live in, make me believe that its future is bright.
